July 12, 2023 at 15:38 GMTModified date: July 12, 2023 at 15:39 GMT
July 12, 2023 at 15:38 GMT

Minimal volatility as US inflation cools to 3%

Today’s US CPI report reveals that, in June, it increased by 3% compared to the same period the previous year – the slowest rate of growth in over two years.

Minimal volatility as US inflation cools to 3%

The recently published US Consumer Price Index (CPI) report reveals that, in June, the CPI increased by 3% compared to the same period the previous year, marking the slowest rate of growth in over two years. 

Examining the details, the report indicates that the Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.2% in June after adjusting for seasonal variations. The primary driver behind this monthly increase was the shelter category, which accounted for over 70% of the overall rise. Motor vehicle insurance also contributed significantly.

In terms of food, the index saw a modest 0.1% increase, with no change recorded for food at home, while food away from home experienced a 0.4% rise. The energy index witnessed a 0.6% increase, with varying performances observed among its major components.

Excluding food and energy, the index for all items rose by 0.2 percent in June, marking the smallest monthly increase since August 2021.

Interest rate hike likely ahead of FOMC meeting

The CPI data, which measures the price changes of goods and services paid by consumers is widely recognised as a key driver of economic insights. It often forms the foundation for decision-making by the Federal Reserve, particularly regarding interest rates.

Ahead of the FOMC meeting scheduled for 25-26 July, analysts project that the deductions from the newly released data is less likely to discourage the feds from hiking interest rates. However it is a quite popular opinion that the feds will pause rate hike again after this month as it did in June.

Matt Miskin, co-chief investment strategist for John Hancock Investment Management, shares this belief. Speaking about the new CPI data, he said: “It solidified our view of one more rate hike of the cycle and a pause after that. Sure there are things that can change from here, but if further disinflation comes in, it’s just going to continue to cause yields to fall and pricing out a lot of that ‘higher for longer’ that had been priced back in over the last couple months.” 

Ryan Sweet at Oxford Economics shared the same sentiments. He predicts that interest rate hike is likely to occur but that the new data provides a reason for the Fed to consider whether additional rate hikes are necessary beyond this month.

“The Fed has painted itself into a corner as Fed officials’ communication has signaled that another rate hike this month is essentially a slam dunk. However, the new data could give the Fed reason to debate whether any further rate hikes after this month are needed,” he said.

In line with these projections, CME FedWatch Tool’s earlier prediction of an 89.8% chance of interest hike in the upcoming FOMC meeting has increased to 92.4% today.

Source: CME

Minimal price fluctuations in crypto market

The crypto markets have been slow to react to the news so far as volatility has been minimal. Total crypto market cap has slightly increased by 0.63% to 1.19 trillion with Bitcoin and Ethereum recording below 1% gains in the last 24 hours. 

Minutes after the CPI release, Bitcoin surged to $30,959.97 but sharply retraced to $30,542 an hour later. As of press time, the leading digital asset is trading at $30,664.

BTC daily chart. Source: CoinMarketCap